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Marsh & McLennan to Buy JLT for $5.7 Billion in Consulting Push

(Bloomberg) -- Marsh & McLennan Inc. agreed to buy Jardine Lloyd Thompson for about 4.3 billion pounds ($5.7 billion) to solidify its dominance in the business of insurance brokerage and consulting.

The New York-based buyer, which has a larger market capitalization than rivals Aon Plc and Willis Towers Watson Plc, will gain expertise in specialty risk brokering and enhance its position in Asia and Latin America, the company said Tuesday in a statement. The companies estimate that Marsh & McLennan’s revenue will rise to about $17 billion as a result of the acquisition.

The deal ranks among the largest ever involving insurance brokers, an industry that has drawn interest in recent years from private equity buyers attracted to a low-risk business and strategic investors seeking to consolidate a fragmented market. KKR & Co. last year teamed up with Canada’s Caisse de Depot et Placement du Quebec to acquire USI Insurance Services for $4.3 billion.

The insurance industry has seen about $113 billion worth of deals completed over the past 12 months, according to data compiled by Bloomberg. American International Group Inc. agreed earlier this year to buy Bermuda reinsurer Validus Holdings Ltd., and France’s Axa SA purchased XL Group Ltd.

The 19.15 pounds-a-share cash offer is backed by both companies and represents a premium of 33.7 percent over the U.K. reinsurer’s closing price on Monday. JLT shares jumped by almost a third in London trading. JLT Chairman Geoffrey Howe called the bid “a compelling offer” in a statement.

‘Fabulous’ Price

The deal price is “fabulous” for JLT shareholders, Barrie Cornes at Panmure Gordon & Co. said. “We flagged our belief that the insurance sector would be in play, but saw JLT as an unlikely candidate given its valuation and the 40 percent shareholding” of Jardine Matheson Holdings Ltd.

Marsh & McLennan shares dropped 3.3 percent to $83.75 at 10:43 a.m. in New York, their biggest intraday decline since late July. That could be partly driven by the high multiple paid, Wells Fargo & Co. analyst Elyse Greenspan said in a note to clients earlier Tuesday. JLT shares gained 31 percent.

JLT Chief Executive Officer Dominic Burke will join Marsh & McLennan as vice chairman and a member of the executive committee. The deal is meanwhile expected to generate 1.7 billion pounds in net proceeds for Jardine Matheson, the Asia-focused conglomerate.

Marsh & McLennan CEO Dan Glaser approached Burke early this month about the deal, which came together in a matter of days largely because of the attractive price offered by the buyer, according to a person with knowledge of the matter. One of the preconditions of the offer was an agreement from JLT’s largest shareholder -- Jardine Matheson -- that it would tender all its shares, said the person, who asked not to be identified because the deliberations were private.

JLT’s independent directors were advised by J.P. Morgan Cazenove and Simon Robertson Associates, and Marsh & McLennan was advised by Goldman Sachs Group Inc. Goldman also provided a 5.2 billion-pound bridging loan for the purchase.